How a lower pound will help us to escape cloud cuckoo land

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So far, one of the most important consequences of Brexit is the fall of the pound. Yet its effects are not well understood. At the risk of teaching grandmothers to suck eggs, I want to explain how the lower exchange rate can help. It isn’t completely straightforward.

The lower pound has changed relative prices in a way that encourages businesses and consumers to substitute UK production for foreign. After a lag, this should result in improved trade performance, which will boost GDP.

It is widely believed that this process works by making exports cheaper and imports more expensive. But this is not quite right. When thinking this through, you have to use the same currency for both exports and imports....